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Gaming and digital growth offset lottery decline for IGT in Q1

| By Daniel O'Boyle
Gaming and lottery supplier International Game Technology (IGT) brought in $1.05bn in revenue in Q1 of 2022, up 3.5%, though profit declined mostly due to a shift towards lower-margin product sales rather than services.

Breaking revenue down by IGT’s three divisions, the global lottery division brought in $680m, down 9.1% from Q1 of 2021.

This was mostly made up of operating and facilities management contracts, which brought in $551m after licence fee amortisation is taken into account. IGT made a further $45m from lottery product sales and $84m from other lottery income.

The global gaming division brought in $325m, up 42.1%. This was almost split equally between services ($165m) and product sales ($160m). Breaking the gaming services revenue down further, $108m came from terminal services and $58m from systems and software. Most of the product sales, meanwhile, came from terminals at $104m with other products at $55m.

Revenue from the digital and betting segment – which IGT announced plans to spin off at an investor day last year – came to $47m, up 23.7% and all from services.

Breaking revenue down geographically instead, $598m came from the US and Canada, $298m from Italy and $155m from elsewhere.

“The first quarter results clearly reflect the power of our portfolio,” Vince Sadusky, chief executive of IGT, said. “The quarter’s strong margin profile highlights the long-term recovery of the gaming business as well as increased levels of lottery play from pre-Covid periods.”

The business then paid $799m in operating expenses, up 5.8%.

This was mostly due to $428m in costs of services, down 2.9%, and $122m in costs of product sales, up 67.1%, as well as $193m in selling, general and administrative costs, up 3.7%. The business also paid $57m in research and development costs, up 3.7%.

This meant IGT was left with $252m in operating income, down 3.1%.

The business incurred $76m in interest expenses, down 19.1% but made a gain of $3m from foreign exchange changes, which was a stark difference from a $145m gain from that category in Q1 of 2021. The business also made $3m in other income, after $25m in other expenses a year earlier.

This left IGT with $182m in pre-tax profit, down 36.6%.

After paying $65m in income tax, down 56.0% from Q1 2021 tax bill, IGT was left with $117m, down 15.2%.

The business also reported $433m in earnings before interest, tax, depreciation and amortisation, which was level with Q1 of 2021’s record total.

Sandusky added that the business’ efficient spending meant it had a large amount of cash reserves.

“The company’s initiatives around a simplified corporate structure have resulted in strong liquidity as we continue to invest in product development and return capital to shareholders.”

After the quarter ended, IGT announced that it had agreed to acquire online gaming aggregator iSoftBet for €160.0m in cash. The deal is expected to close this quarter.

“This is a unique opportunity to add significant complementary scale to our igaming business,” Sandusky said. “The transaction advanced many strategic initiatives much faster than we could do on our own.”

The business also published its outlook for the second quarter of 2022, which includes iSoftbet revenue. The business expected revenue to fall between $1.0bn and $1.1bn for the quarter.

“This quarter marks excellent progress on the profitable growth trajectory outlined at our November 2021 investor day,” IGT chief executive Max Chiara said. “The benefits we are realising from continued discipline around cost and cash flow management are evident in profit margins that are among the highest in the last three years and in significantly lower interest expense.”

 “We are on pace with our leverage target for the year and expect further improvement with the expected proceeds from the announced asset disposition.”